Fund managers, regulators opposed to plan offering minimum assured returns on pension

The proposal to offer assured returns on market-linked pension plans by PFRDA is facing resistance from fund managers and regulators, says a source-based media report.

This month, the matter was taken up in the Financial and Development Council (FSDC) meeting. PFRDA has proposed an inter-regulatory committee to resolve the issue, says a Livemint report.

“One of the modalities being considered for this product is to offer it as an annuity product but Irdai is not in favour,” a source said. Annuity – investments which entitles a series of annual sums – is offered by insurance companies in India.

In 2016, the Pension Fund Regulatory and Development Authority (PFRDA) had floated the proposal of a market-linked pension product with minimum assured return.

The source, with direct knowledge of the matter, said banking regulator, markets regulator and insurance regulator are opposing the proposal.

Market regulator Securities and Exchange Board of India (SEBI) is against the idea as liability of an assured return could fall on asset management companies sponsoring pension funds. The central bank is not in favor as assured returns could be considered debt security disguised as equity, says the report.

Even when PFRDA had floated the idea, SEBI had opposed it. According to previous reports, the market regulator had raised concerns with the pension regulator, Finance Ministry and the FSDC.

All pension funds except funds by mutual funds had agreed to participate in the scheme. However, pension managers say that returns from such schemes will be low.

A PFRDA official told Livemint that the product is tricky as cost of guarantee in such a scheme will be passed onto customers in turn lowering the returns.

An earlier committee – GN Bajpai committee – had examined the minimum assured plan in 2013 and said that cost of guarantee should be passed onto customers.